On the Law of Markets and Overproduction Literature

D. On the Law of Markets and Overproduction Literature

Marx reviewed the economic literature on the Law of Markets and in the course of his account further clarified his own position regarding “overproduction.” His attitude towards Ricardo was mixed. Ricardo had allowed only capital mobility between sectors in response to relative profitability: “[For Ricardo] since produc- tion is itself regulated by the costs of production, it regulates itself. And if a particular branch of production does not valorise itself, capital withdraws from it to a certain degree and moves into other branches in which it is necessary” (MECW 28: 340). But he failed to recognize general overproduction due to – or perhaps only with a counterpart in, for the text is unclear – excess demand for money to hold; for “the disharmony and hence the contradiction, in a general crisis of overproduction the contradiction is not between different types of productive capital, but between industrial and loan capital, between capital as it is directly involved in the pro- duction process and capital as it appears as money independently (relativement) outside that process.”

D. On the Law of Markets and Overproduction Literature 281 For all that, Ricardo is said to have appreciated the essentials of capital better than

Sismondi despite the latter’s recognition of impediments to its smooth operation reflecting consumption inadequacies:

The economists who, like Ricardo, conceive production as directly identical with the self-valorisation of capital, who therefore ignore the barriers of consumption or the existing barriers of circulation itself, so far as circulation must represent counter-values at all points, and who are only concerned with the development of the productive forces and the growth of the industrial population – i.e. with supply, regardless of demand – have therefore grasped the positive essence of capital more correctly and profoundly than those who, like Sismondi, emphasise the barriers of consumption and of the existing circle of counter-values, although the latter has better grasped the limitations of production based on capital, its negative one-sidedness. Ricardo has better grasped its universal tendency, Sismondi its particular restrictedness (337; emphasis added).

In an important elaboration Marx allows that Ricardo suspected “that exchange value” (Marx’s labor embodied of course) “proves itself as value only through exchange” – alluding here to the demand requirement – but finds Ricardo’s pre- sumptiveness regarding its satisfaction (presumably at the aggregate level) “often absurd,” veiling the phenomenon of “real modern crises”:

The whole controversy as to whether overproduction is possible and necessary in pro- duction based on capital, is about whether the valorisation of capital in production directly posits its valorisation in circulation; whether its valorisation posited in the production process is its real valorisation. Ricardo of course also has a suspicion that exchange value is not value outside exchange, and that it proves itself as value only through exchange. But he considers the barriers which production encounters in this direction as accidental, as barriers which are simply overcome. He therefore conceives the overcoming of such barriers as implied in the very essence of capital, although his exposition of this is often absurd. . . . Ricardo and his entire school have never com- prehended the real modern crises in which this contradiction of capital discharges itself in violent thunderstorms, which more and more threaten capital itself as the basis of society and production (337–8).

This instability Sismondi well understood – he even glimpsed the breakdown of capitalism – but sought (in vain) to impose artificial restraints on production: “Sismondi, by contrast, emphasises not only the encountering of the barrier but its creation by capital itself, which thus gets itself into contradictions, contradictions in which he glimpses the impending breakdown of capital. He, therefore, wants to impose barriers on production from outside, by means of custom, laws, etc., which, as merely external and artificial constraints, would necessarily be demolished by capital” (338).

With respect to the orthodox denial of general overproduction, Marx is particu- larly harsh towards McCulloch; James Mill emerges only a little better; while Say is nothing more than the “insipid imitator” of Mill: “To rescue production based on capital, the orthodox economists (see e.g., MacCulloch [1825: 90]) either ignore all its specific characteristics, all its conceptual definitions, and rather conceive of

1857–1858 II: Value “Realization”

it as simple production for immediate use value. [They] entirely abstract from its essential relations. In fact, to purify it of contradictions, they simply drop it and negate it. Or, like, e.g., Mill [1823: 250–60], they adopt a more perceptive proce- dure (insipidly imitated by Say): supply and demand are identical, hence they must correspond to each other. For supply is really a demand, measured by its [supply’s]

own amount.” 15 Here we again encounter Marx’s insistance not only on indepen- dently determined demand conditions based on “use value” reflecting “the mass of existing needs” for a commodity – wholly on a par with supply – but also on the monetary intermediary in the “realization” of “exchange value”:

Here a great confusion: (1) the identity of supply, i.e. being a demand which is measured by its [supply’s] own amount, is true only to the extent that it is exchange value = a certain amount of objectified labour. To that extent, supply is the measure of its own demand as far as value is concerned. But as such a value, it is realised only through exchange for money; and as an object of exchange for money it depends upon (2) its use value; and as use value, in turn, it depends upon the mass of existing needs for it, the demand for it. However, as use value it is absolutely not measured by the labour time objectified in it, but by a standard quite unconnected with its nature as exchange value (338–9).

These charges against the orthodox reduce to their viewing the capitalist system in terms of “simple exchange,” or barter, rather than as a monetary system wherein realization of “exchange value” (labor time) requires monetary expenditure reflect- ing demand requirements. Thus James Mill’s “ingenious” formula “supply = its own demand, hence demand and supply are identical . . . means only that value is determined by labour time, and consequently exchange adds nothing to value. The only thing which is forgotten here is that exchange must take place, and whether it does or does not depends upon use value (in the final analysis) . . . ” (352); Say – who expresses this proposition in stultified form: “products are exchanged only for products [Trait´e 1817 2: 441]” so that “all that can happen is that too much is produced of one product and too little of another” – “adopts the standpoint of simple exchange, in which indeed no overproduction is possible because it really is concerned with use value, not with exchange value.” And the source of this misconception was a failure to recognize “that producing capital demands not a particular use value but value for itself, i.e. money – money not in its role as means of circulation but as the general form of wealth . . . ” (339). 16

The emphasis on the possibility of general commodity excess and the require- ment of a monetary form of “realization” of exchange values did not, Marx insisted,

15 Marx cites the French translation (1823) of Mill 1821: 186–95. He was unaware of Say’s sophisticated approach to the Law of Markets and his temporal priority over James Mill, on

which matter see Hollander 2005: 219–22. 16 See also: “ . . . it is value as such, i.e., money, which both maintains itself in circulation and

grows through the exchange with living labour; that therefore the purpose of productive capital is never use value, but the general form of wealth as wealth” (MECW 28: 519). One authority Marx cites favorably in this regard is Chalmers 1832: 164–6.

D. On the Law of Markets and Overproduction Literature 283 place him with the inflationists. For the source of the overproduction problem was

not monetary but rather one of “production which cannot be converted into money, hence into value, production which does not pass the test of circulation. Hence the illusion of the money-conjurers (also Proudhon, etc.) that there is a shortage of means of circulation because of the dearness of money, and that more money has to be created artificially. (See also the Birmingham School, e.g., the Gemini.)” 17 This is in line with a general opposition to monetary panaceas. And the perspective on capital turnover (above, Section B) also points away from the inflationists or “circulation manipulators who imagine that credit banks and new credit devices which transcend the duration of circulation time can not only remove the delays, the interruption of production, required for the conversion of the finished product into capital, but make the capital for which the producing capital exchanges, itself superfluous, i.e. they want to continue to produce on the basis of exchange value, but at the same time to remove by some magical formula the conditions necessary for production on this basis” (469). In short, the inflationists went too far, and “[t]he most that credit can do in this respect, where it is a matter of mere circulation, is to maintain the continuity of the production process if all other conditions for this continuity are present, i.e. if the capital to be exchanged with actually exists, etc.”

The case against the inflationists is further clarified in terms of the “dual appear- ance” of money which generates a misconception that all crises reflect an inadequate money supply – implicitly an excess demand for money to hold – when in fact the problem may run deeper, entailing that of “realizing capital.” As for the dual per- spective, there is firstly the function of money in “[t]he transformation of the product into money [or] reconversion of capital into value as such, value existing independently; capital as money or money as realised capital”; and secondly, there is money “as mere means of circulation . . . only serv[ing] to reconvert capital into the conditions of production. In this second moment, in the form of wages, a certain volume of money must be simultaneously present as means of circulation, means of payment” (503). Increased monetary injections would be to no avail in the former case; for while “it appear[s] in all crises that there is a lack of money as means of circulation,” the problem is that “capital is lacking in value, and thus can- not mon´etiser itself. In such a crisis the volume of money in circulation may in fact increase,” without resolving the problem. Again, money’s dual character implied that “[i]n crises, capital (as commodity) cannot be exchanged, not because there are too few means of circulation; it does not circulate because it is not exchangeable” (520). In fact, “the significance which cash acquires in times of crisis arises only from the fact that, while capital is not exchangeable for its value – and only for that reason does its value appear to confront it fixed in the form of money – it

17 The reference is to the anonymously written The Currency Question: The Gemini Letters (1844) – by Thomas Wright and J. Harlow – addressed to Sir Robert Peel and arguing for the issue of

inconvertible paper sufficient to assure full employment (see Fetter 1965: 179–80; also editorial note editorial note MECW 28: 558).

1857–1858 II: Value “Realization”

still has obligations to pay. Alongside the interrupted circulation, a forced circu- lation takes place.” The policy implication here is that easier credit conditions

might be of avail only in relieving what is a secondary problem. 18 And yet we have also seen that credit is elsewhere accorded the role of “extend[ing] the range of, and . . . overcom[ing] the barrier to, circulation and exchange” (above, p. 278).

It is instructive to compare Marx’s position with that of J. S. Mill. In his essay “Of the Influence of Consumption on Production” (composed in 1830) Mill had “inquire[d] into the nature of the appearances, which give rise to the belief that a great demand, a brisk circulation, a rapid consumption (three equivalent expres- sions), are a cause of national prosperity,” and allowed that if the turnover period were reduced by a more “brisk circulation” hitherto idle capital might be actively utilized in the expansion of physical plant, materials and wage goods (though he also warned that in a world of imperfect knowledge inventories could never be

entirely dispensed with) (Mill 1963–91 [1844]: 264, 268–9). 19 Expansion of aggre- gate expenditure – partly due to credit – might also act as a stimulus to real output in periods of business depression (276f). We have seen that this is also Marx’s posi- tion regarding the role of credit at least in cases where excess demand for money is the issue.

Beyond his two allowances Mill refused to go. Certainly there were no constraints on secular expansion reflecting lack of purchasing power. It has already become clear, and it will be confirmed in Section E, that in this regard Marx is closer to Malthus (and Sismondi), though for Marx as well as Mill monetary means would be inappropriate as secular stimulus and entail nothing but an invitation to inflation. 20

Marx was aware of Mill’s position, 21 and cited the Unsettled Questions as contain- ing the “few original ideas of Mill junior” on precisely the matter at hand, namely capital “locked up” or “lying idle” in inventory, such being “the price we pay for division of labour,” with some allowance made for “contrivances of banking” to improve circulation time with positive effects on real output (MECW 28: 535– 6). That he derived intellectual stimulus from Mill is thus very likely. And Marx’s

18 Unfortunately, we are given little guidance as to how the two categories are to be distinguished in practice, since this matter is postponed: “The new determinations of money; how it is

posited as a moment of the circulation of capital, partly as its means of circulation and partly as the realised value of capital, as itself capital, will require a section of its own when we discuss interest, etc.” (MECW 28: 503). 19 See also Mill, Principles of Political Economy 1848, Book III, Chapters xii, xiv. 20 Malthus too – no less forcefully than Mill – rejected such devices (Hollander 1997: 674–6, 1003–4). 21 Marx became familiar with the Unsettled Questions soon after its appearance, copying out passages in his Manchester Notebook for 1845 (editorial note, MECW 36: 533n). There are also statements by Samuel Bailey (1837) regarding “accelerated circulation” as means of activating “dormant capital” which Marx cites favorably in the Grundrisse (MECW 28: 502–4). (Bailey’s position is very close to Mill’s but less well known; Mill himself inexplicably neglected this remarkable precursor.)

E. On Working-Class Consumption 285 (qualified) admiration for Tooke and Fullarton and the Banking School perspective

opposed to Peel’s Act of 1844 has been convincingly demonstrated (Arnon 1984; Nelson 1999: 34–5, 144).